You would quite likely have read more than a few commentaries on the performance of global equities so far this year, now that 1H2023 is in the rearview mirror. And we bet that one of the most common narratives is how stocks have surprised on the upside; with Wall Street leading the rally, the S&P 500 index and Nasdaq Composite are up 15.9% and 31.7% respectively in the first six months of the year. Indeed, most investors had started the year in bearish mode, following a bruising 2022 when almost all asset classes — including stocks, bonds and cryptocurrencies — suffered massive losses. There were widespread expectations of an imminent global recession, with central banks aggressively hiking interest rates to tame the highest inflation in decades.
In our first article this year, we wrote that markets were at a crossroads — they could go either way (huge gains or huge losses) — and against the backdrop of great uncertainties, there would be increased volatility in asset prices. We were right about the uncertainties — analysts, economists, market commentators and investors remain deeply divided on the economy and the stock market’s near-term direction. Yet, volatility has fallen steadily lower this year, save for the brief spike up during the US regional banking crisis in March, as the market climbed higher (see Chart 1).
